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NatWest (UK)

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NatWest is the main UK retail banking division of Royal Bank of Scotland. During the 1990s, the National Westminster Group set its heart on becoming an international investment bank to rival the American giants. It was the group's second attempt to become a global power, but ended in failure because profits lagged far behind NatWest's ambitions. Then just as the bank thought it had put its troubles behind, an attempted merger with insurance giant Legal & General went horribly wrong. NatWest's share price plunged, allowing Scottish predators Bank of Scotland and RBS to mount rival takeover bids. The latter group won the day in 2000. NatWest ended up as the UK's second largest banking brand, but sacrificed its independence in the process. New parent Royal Bank of Scotland underwent a similar baptism of fire eight years later when its own attempt to conquer the global market also ended in disaster.


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Brand & Activities

NatWest is the main retail banking brand of the RBS Group. The group as a whole has the country's largest retail banking network with a total of over 2,250 branches and 6,600 ATMs. NatWest accounts for 1,640 of these branches, mostly concentrated in England and Wales. It was neck-and-neck with Lloyds at the end of 2014, as the UK's #2 bank by personal current accounts, according to the Gfk NOP/ JGFR barometer ranking, with a little over 13% share. Since then, though, it has slipped steadily back, falling to 5th place by 1Q 2016. Royal Bank of Scotland is RBS Group's main retail banking brand in Scotland, while Ulster Bank is the group's operation in Northern Ireland. It was ordered to sell its remaining branches in Scotland by European regulators, but a deal for them to be acquired by Santander collapsed in 2012. With no other buyers on the horizon, the branches are likely to be separated out as a new independent bank under the name Williams & Glyn. However, as a result of repeated delays, a full separation is not now likely until late 2017 or even early 2018.

NatWest is the market leader in small and medium enterprise banking with around 25% share, as well as in student accounts. It offers a broad range of loan, mortgage, insurance and pension-related products alongside more traditional banking services. The business serves more than 14m personal customers and 1.1m business customers. One of its fastest-growing services in recent years has been mortgages, with combined mortgages outstanding of £105bn in 2015. RBS as a whole was the 4th biggest mortgage lender in 2015 with 11.2% market share.

The bank likes to position itself as being the most customer-conscious of the main retail banking brands, and marketed itself under a succession of different slogans highlighting this fact, including "Another Way" from 2001, "Helpful Banking" in 2010 and "Fairer Banking" in 2015. That positioning was certainly the case when the campaign launched, highlighting NatWest's commitment to its branch network, at a time when other banks were alienating customers by closing branches. NatWest has continued to develop other ways to demonstrate its commitment to customers, including the launch of a customer charter, but the concept has arguably become less relevant since all the other retail banks have now adopted a similarly customer-focused approach.

While the RBS group brand is most closely associated, in sponsorship terms, with rugby, NatWest also has a long association with cricket, dating back to 1980. It is the leading sponsor of UK cricket at county and international level. Perhaps more controversially, it has been headline sponsor of the LGBT Awards since 2012, and in 2013 was the first UK bank to make a lesbian couple the centrepeice of a high profile TV commercial.

RBS no longer reports separate figures for the NatWest brand. However revenues for the group's combined UK personal & business banking businesses, comprising NatWest and Royal Bank of Scotland, were £5.20bn in 2015, with operating profit of £1.03bn. Mortgage interest and fees accounted for almost half of revenues, or £2.31bn. The Williams & Glyn estate is accounted separately, and reported income of £833m and operating profit of £431m.


NatWest's banking business is the result of the merger between two separate banking groups at the end of the 1960s. The National Provincial Bank, founded in 1832, specialised in banking services outside London, and grew by acquiring other regional banks. Among the numerous banking companies it acquired were private bankers Coutt's &Co (in 1920) and much larger District Bank in 1962. Meanwhile, London & Westminster Bank had formed in 1834, and grew by assimilating other London banks, as well as further flung Ulster Bank (in 1917). In 1968 National Provincial and London & Westminster merged. The combined NatWest added a series of other businesses in the 1970s including Lombard Banking (1970) and the National Bank of North America in 1977. In 1971, NatWest joined forces with rivals Lloyds and Midland to launch the first UK credit card on the Mastercard network under the name Access, a competitor to Visa-backed Barclaycard, introduced a few years earlier by Barclays.

In the 1980s, the group began to acquire other US companies, including Ultra Bancorp in 1988, and by the start of the following decade, NatWest was the UK's biggest bank. But ambitious plans to rival America's global investment banking giants fell apart in 1996 and 1997 when the group was hit by a series of reverse, including substantial real estate losses in the US. Midland, Lloyds and Barclays were acquired or merged with other companies, but NatWest tried to go it alone, with disastrous results. The costs of setting up a global investment banking operation had been considerable, including the acquisition in 1996 of UK fund manager Gartmore for £472m, US broker Greenwich and the corporate advisor Hambro Magan. But performance was poor, and to make matters worse it became apparent that some traders had been mispricing interest rate options, leading to a £90m black hole in NatWest's books. Fingers badly burned, the group took the decision to pull out of the equities business altogether, selling off the business to Bankers Trust and Deutsche Morgan Grenfell. The combination of operating losses, mispricing and restructuring following the sell-off resulted in a whopping £706m loss for NatWest Markets. The group also pulled out of the US, selling loss-making Bancorp in 1996 for a huge loss. By 1997, NatWest had fallen from the biggest to the smallest of the UK's big five banks.

There then followed a series of embarrassing stalled merger negotiations during 1997. With an eye on retail banking, NatWest made a friendly approach to mortgage specialist Abbey National, proposing a £25bn merger. The offer was flatly refused, and news of this failure inspired several rivals to open talks to acquire NatWest. Against the odds, NatWest managed to scrape through with its independence intact, largely by selling off many of its non-core assets, including a large chunk of the Lombard consumer credit business (to Abbey National), and mergers & acquisitions advisor HawkPoint Partners (to management). Instead, NatWest looked towards the burgeoning bancassurance sector, and began a new set of ambitious and highly confidential takeover talks with insurance group Legal & General. Rumours spread quickly that Legal & General was in play, causing the company's share price to soar. As a result, NatWest was forced to go public with its plans, hoping to win support from investors. In fact, quite the opposite happened. The City quickly came out against the proposed merger, marking down NatWest's own share price.

This presented smaller rival Bank of Scotland with a perfect opportunity. Using a decade's worth of poor NatWest management as its main argument, the Scottish bank launched a £20bn hostile takeover bid. NatWest struggled to find a friendly white knight to come to its rescue, opening tentative talks with Bank of Scotland's own rival, Royal Bank of Scotland. NatWest's defence against takeover quickly began to look very weak. Shortly afterwards, the group announced the departure of chief executive Derek Wanless, the target of most of the criticism for NatWest's poor performance.

Towards the end of 1999, Bank of Scotland's takeover bid was given the green light by regulators. Sensing victory, BoS launched what it thought was an unbeatable revised offer of £26bn for NatWest. This prompted Royal Bank of Scotland finally to come off the fence. After lurking in the background for two months without formally tabling a bid, RBS presented its own friendly offer to NatWest. When this was rejected, RBS too went hostile, offering a matching £26bn bid, but with a slightly larger cash element. Shareholders were eventually left with three alternatives to consider: the two Scottish banks' bids or preservation of NatWest's independence. The contest began to look very close indeed, but shortly before the final deadline, several of NatWest's biggest shareholders came out in favour of RBS. NatWest and BoS were forced to concede defeat. Accounting for declines in share price, the final value of RBS's bid was £20bn. Following the merger, NatWest was forced to reveal financial results which demonstrated flat profits and an inefficient cost-base. In its last full year of independence, pretax profits had risen just 6% (to £2.3bn), compared with a 30% rise at Barclays and 20% at Lloyds TSB. The figures also revealed costs of £65m for the months of PR, legal and financial advice as NatWest fought to remain independent.

Following the agreed sale, RBS improved NatWest's performance considerably, selling off non-core businesses as promised. The group agreed the sale of Gartmore to US life insurer Nationwide Mutual Insurance in 2000 for just over £1bn (almost double the expected price). NatWest Equity Partners was sold to management for £522m. In a nagging reminder of the bank's former investment business, three senior executives who had been employed by NatWest were subsequently charged with conspiring with officers of US energy giant Enron to commit wire fraud. In a case that has rumbled on since the collapse of Enron in 2001, the so-called "NatWest Three" are alleged to have sold NatWest's shareholding in a subsidiary of Enron for less that it was worth, then reacquired some of those shares personally. They later resold the shares at a much higher price for a considerable profit. In 2006, a court finally granted permission for the three bankers' to be extradited from the UK to face trial in the US. Ironically, the case is being brought by Enron investigators. NatWest, the only apparent victim of the fraud, has never pressed charges against the three.

The process of integrating NatWest into RBS was finally completed in November 2002 when the two businesses' IT systems were combined. The entire process took three years, and involved the loss of more than 18,000 jobs. A key factor in the takeover was the company's promise not to continue its branch closure programme, and also to guarantee that its small business managers would not move jobs within a four year period, strengthening existing customer relationships. The company also eliminated charges for using its cash machines (a move copied by the other banks) and on overdrafts. The merger was widely praised for its efficiency and success. RBS achieved savings of more than £5.5bn, over £1bn more than had been anticipated.

Last full revision 22nd November 2016

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